Break even usages
What are some of the ways a break-even analysis can be used?
A break-even analysis is a financial estimate of the point at which earnings of the project is equal to the total cost. However, there are multiple applications of this calculation.
- For a business, break-even analysis is used to determine the point at which a trend of losing money crosses over to profitability. At the actual cross-over point, there is no profit or loss. It should be noted that this application is for on-going operating conditions, which is different from the investment application (see below).
- For a make vs buy, lease vs buy, or other similar decision, it is the point at which the costs are equal for each option.
- Cash flow break-even occurs when incoming cash is equal to outflow.
- For an investment, break-even is when the capital invested has been returned from some source, an even also known as "return of capital" or "making whole."
A break-even analysis is a fundamental element of any strong business plan or investment strategy.
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